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Report: Cell phone use has revolutionized North Korean logistics

A person using a cell phone.(kev-shine/Flickr)
March 24, 2019

This article was originally published by Radio Free Asia and is reprinted with permission.

The advent of cellular phones is transforming logistics in North Korea, accelerating a shift towards a market economy, according to a recently released study by the Committee for Human Rights in North Korea (HRNK), a U.S.-based advocacy group.

The report, “North Korea’s Mobile Telecommunications and Private Transportation Services in the Kim Jong Un Era,” details how de-facto privately-owned vehicles known as servi-cha are able to more efficiently and reliably transport goods and people across the country through the use of cell phones.

In the report, author Yonho Kim, a non-resident fellow at the Korea Economic Institute of America (KEI) explained how the servi-cha industry sprung up following the economic crisis of the 1990s, after which North Korea’s railroads fell into disrepair. Deteriorating locomotives from the Japanese colonial era (1910-1945) were traveling at speeds slower than 20 miles per hour, turning a one-day trip into an affair lasting several days.

But as the country began to allow marketization as a survival tactic, the demand for movement of people and goods increased, giving rise to private, and in many cases illegal, road transportation service.

Prior to cellular phone use, however, this system was still inefficient as merchants had to meet with buyers and sellers directly, had to bring their goods to market places, and had to keep a watchful eye out for government surveillance.

Mobile networks were reintroduced in North Korea after a four-year ban in 2008. In that year there were fewer than 2000 subscribers to Koryolink, the country’s main mobile network. According to estimates by the (South) Korean National Intelligence Service, there were 4 million subscribers in 2018.

With cell phones, independent servi-cha became part of a sophisticated network, where buyers, sellers drivers, and service personnel are all in constant contact with each other.

“You can no longer imagine doing business without a cell phone in North Korea,” said Kim at a public presentation of his findings in Washington on Tuesday.

“Long gone is the term ‘runner merchant,’ as now with the phone numbers of your clients and drivers you can operate your business as a so-called ‘stay at home merchants.’”

Merchants also now have access to real time market information and can negotiate over the phone on price, quantity, shipping and delivery.

This shift presents new challenges to the regime to maintain control over the economy, especially when the regime’s enforcers benefit from the servi-cha logistics system through the collection of bribes and other corrupt activities.

One example Kim wrote about in the report is the gas trade. As gasoline is only commercially available in Pyongyang, in the past the servi-cha operators would carry large quantities of fuel and sacrifice cargo space.

But now they are able to purchase fuel distributed to the countryside for military use and sold on the black market by corrupt military officials. The illegal fuel merchants can be called on a moment’s notice.

Prices can be compared and refueling appointments can be arranged en-route.

Other information that can be shared instantly over mobile phones includes which types of goods the government is cracking down on, warnings about specific checkpoints, estimated times of arrival and current location, as well as agreements to fix prices among several servi-chaoperators.

This logistics network is uniquely North Korean, according to George Hutchinson, a member of the board of directors at the International Council of Korean Studies.

During a discussion after Kim’s presentation, Hutchinson noted that in many circles there is talk of North Korea adopting a Chinese model for economic growth through marketization.

“But unlike the top-down driven reforms by Deng Xiaoping that began the marketization process for the Chinese in the ‘70s and ‘80s, change in North Korea is occurring from the bottom up,” said Hutchinson.

He said prolonged reliance on this distribution system would put pressure on the regime to open up even further, to benefit even more from increasing success. But that would also be dangerous for the regime.

“Increased marketization is creating a new capitalist class whose objectives are simply not in line with the state,” he said.

Kim said he foresees several changes in policy to enhance this system. In the report he wrote that it is inevitable that road infrastructure development and maintenance will become necessary, and that a legal fuel supply system must replace the current system, relying on fuel smugglers and corrupt military officials.

“It would be reasonable to assume that the increased mobility of people, products and information has already reached an irreversible level,” wrote Kim.

He suggests that the Kim Jong Un regime might be able to contain rapid marketization in the short term, but believes that this approach would not be sustainable.

“It was the new logistical system that may have prompted North Korea to show efforts to focus on systematic economic development after declaring the completion of its nuclear arms capabilities,” Kim wrote.

“You cannot draw a very clear demarcation line between the state and market in North Korea,” said Kim.

“The wealthier merchants that dominate the market are really connected to government officials, or sometimes they themselves are the government officials,” he said.